This current global malaise is a first. Factories have been abandoned, homes and buildings sit empty, machinery is idle and people are unemployed. Yet, while we know how to manage the economy, we won’t employ our tools effectively.
Our primary challenge is to coax more output out of the economic machine. Secondary challenges are unemployment, underemployment, deflation and inflation, monetary policy and national debt. While these symptoms can be treated to ensure the right mix to reach full power, we must fix the machine to permanently solve the problem. Until the primary challenges are solved, generating more spending without creating greater production will be inflationary.
Instead, we must seek high bang-for-the-buck ways to expand production. Past stimulus emphasized consumption by bolstering public-sector employment and unemployment compensation. It failed to invest in greater production of critical goods or services.
First, we must once again become the most innovative, export-oriented nation in the world. Innovation will require education in specific areas. Patent reform, R&D stimulus and more venture capital will help us foment the next great ideas.
We also need to access our natural resources, sustainably and sensibly. Energy is available from new natural-gas technologies and the expansion of alternative energies like wind and solar. We must solve a pricing and distribution problem. Our gasoline is underpriced in the sense that it has not provided a sufficient incentive to drive more efficient vehicles, as Europe already does. Most economists agree that gas should be taxed more, as painful as a transition to greater fuel efficiency may be.
Our energy distribution network is archaic. We can earn almost immediate dividends in more efficient distribution and lower energy infrastructure costs if we invest in our electricity and natural-gas grid. There is no reason why natural gas is not much more available here and in the Eastern United States. Investments in these sectors would reemploy the construction industry, create greater export-industry competitiveness and allow our savings in energy costs for homes and industry to be used to invest in ways that secure our economic future. The private sector refuses to invest in these networks in this uncertain economy. There is a role for government, with its low cost of capital, to stimulate this investment and get construction going again. In turn, this investment will create secondary jobs in other sectors.